The number of mergers and acquisitions exploded in the past year, with the size of top deals spiking by billions of dollars.
A number of private equity companies were active in Orange County, while several blockbuster deals helped push overall growth in merger activity. Observers see the trends continuing this year.
OC companies were involved in 345 acquisitions announced during the 12-month period through February, according to market tracker FactSet Mergerstat LLC. That’s up from 286 a year earlier, and easily outpaced the prior years coming off a peak 2001.
The M & A; count includes two types of deals: buys by OC-based companies or units and acquisitions of OC businesses or units by other companies (see list of top deals, page 28).
Overall, there was $28.8 billion worth of OC buys and sales in the period. That’s more than three times the $9 billion from a year ago.
“We think it’s kind of the perfect storm,” said Hector Cuellar, president of Costa Mesa-based RSM EquiCo’s deal-making arm.
Cuellar cited a generally positive economic outlook with rising interest rate pressure and tame inflation.
He pointed to hedge funds and private equity as flush with cash, and plenty of aggressive lending on the M & A; side by banks.
The top five buys by OC companies totaled $6.9 billion in the recent period, versus $3.9 billion a year ago.
But it was the sales side that really stood out. The three-biggest sales went for $13.1 billion, accounting for almost half of the total M & A; activity in the past year.
In December, Minnesota’s UnitedHealth Group Inc. closed its $8.1 billion acquisition of Cypress-based PacifiCare Health Systems Inc. for the top deal of the past year. UnitedHealth got a major presence in the West with the deal.
Second was Charlotte, N.C.-based Wachovia Corp.’s buy of Irvine-based Westcorp Inc. and its banking unit WFS Financial Inc. Together, they went for $3.9 billion. Wachovia is expanding its auto lending operations and jumping into the California banking market with the acquisition.
And in the fall, Germany’s Deutsche Bahn AG paid $1.1 billion for Irvine-based Bax Global Inc. Virginia-based parent Brink’s Co. sold off Bax, which offers overnight delivery services, so that it could focus on security services.
Deutsche Bahn, which runs Germany’s national rail network, said Bax would boost its U.S. operations, which include logistics company Schenker AG.
Private equity firms were involved in some top sales last year.
Seal Beach-based Baker Tanks Inc. was bought for a reported $500 million or higher by New York-based Lightyear Capital LLC.
Irvine-based Mexican fast-food chain El Pollo Loco Inc. was bought by New York’s Trimaran Capital Partners LLC for an estimated $400 million.
Los Angeles-based Leonard Green & Partners LP paid an estimated $225 million for a majority stake in Irvine’s Claim Jumper Enterprises Inc. from owner and President Craig Nickoloff.
New York private equity firm Fenway Partners Inc. bought Anaheim-based Targus Group International Inc., a maker of accessories and devices for portable computers, for $383 million.
Buyers Active
On the buying side, the $6.8 billion in top-five deals is the biggest amount since M & A;’s dot-com heyday. The top acquisitions cost $11.4 billion for the 2001 period.
Technology companies helped boost the 2001 numbers with Irvine chipmaker Broadcom Corp. alone making five $1 million-plus acquisitions that year, including two worth more than $2 billion.
Credit trends point to a solid 2006.
“The pace of mergers and acquisitions is mostly driven by the looseness or tightness of corporate lending,” said Murray E. Rudin, a partner at Los Angeles-based private equity firm Riordan, Lewis & Haden Inc. and head of the OC office. “So with that being the primary enabler, the duration of M & A; activity depends on how long the lenders will be generous. I expect this pace will continue at least another year.
“I see nothing on the horizon to cause them to tighten lending in the next 12 months,” Rudin said.
He said rising interest rates won’t yet be a factor.
One observer who’s a little less optimistic is Michael Ellington, managing director of Santa Ana-based Strategic Equity Group, which provides investment banking services.
“Credit tightening could really slow down the M & A; market,” Ellington said. “As rates go up, loans will get a little more sketchy.”
Many of the top deals in OC were done by private equity firms or other companies using their stock or cash hoard to make the deals. Private equity firms are flush with cash, having largely sat on the sidelines following the dot-com bust. Companies, meanwhile, have posted solid profit gains during the past few years of the economic recovery.
Among the most active companies making acquisitions:
Santa Ana-based title insurer First American Corp., which did the most deals in the past 12 months, according to FactSet Mergerstat. The terms of most of its 17 acquisitions weren’t disclosed and were likely small amounts. The company has been looking to add non-title businesses to diversify as the housing market slows.
First American’s largest deal was the buy of Canada-based Geac Computer Corp.’s Interealty Internet-unit for $35 million.
Broadcom, OC’s biggest company by market value, bought 20 companies during its peak a few years ago. The chipmaker has taken a break from its acquisition pace since then. But it picked up four notable buys in the past 12 months valued at about $210 million.
San Clemente-based hotel operator Sunstone Hotel Investors Inc. bought more than $849 million worth of hotels during the past 12 months. Sunstone owns 61 hotels from Newport Beach to New York. The company recently counted a market value of nearly $1.7 billion.
Sunstone went public in 2004 when the company raised $413 million in the largest OC stock debut of that year. Today, Sunstone is one of the top five U.S. hotel REITs by market value, behind Starwood Hotels & Resorts of White Plains, N.Y., and Bethesda, Md.-based Host Marriott Corp.
Earlier this month, Foothill Ranch-based Oakley Inc. made its second buy of an upscale glasses chain in as many months by acquiring Aliso Viejo-based Optical Shop of Aspen. Terms weren’t disclosed.
In February, Oakley announced plans to pay $56 million for Los Angeles based Oliver Peoples Inc., another upscale seller of glasses.
Aliso Viejo-based database software maker Quest Software Inc. did three acquisitions valued at $162 million during the past year.
While they weren’t as active as some others, Irvine-based drug maker Allergan Inc., Newport Beach-based Pacific Life Insurance Co., Santa Ana-based technology products distributor Ingram Micro Inc. and Huntington Beach-based surfwear maker Quiksilver Inc. made some of the biggest buys during the past year.
The largest acquisition wrapped up last week. Allergan’s $3.2 billion bid to grab Inamed Corp. had been held up by regulatory and shareholder issues, but last week, Allergan said it had bought 95% of Inamed’s shares and closed the deal.
Earlier this month, the Federal Trade Commission approved the deal after Allergan and Santa Barbara-based Inamed agreed to sell Inamed’s rights to Reloxin, a potential competitor to Allergan’s bellwether Botox, back to Ipsen Ltd., a European drug maker.
The second-biggest deal of the past year was Pacific Life’s $2.5 billion buy of aircraft leasing company Boullioun Aviation Services Inc. of Seattle, a unit of Germany’s WestLB.
The move doubled the size of Pacific Life’s Aviation Capital Group, which was launched more than a decade ago and now has 220 planes worth more than $5 billion.
In a big deal on the ski slopes, Quiksilver paid $314 million for France’s Skis Rossignol SA in July. Quiksilver, the top surfwear maker, recently cut expectations for its current quarter based on what it called “improved visibility” on the Rossignol unit plus “a challenging environment” in Asia.
Quiksilver also paid $7 million last summer to buy Canada’s Centre Skateboard Distribution Ltd.
Ingram Micro, the world’s biggest computer products distributor, paid $200 million last summer to buy personal computer products distributor Avad LLC of Hollywood, Fla.
